Wednesday, September 15, 2010

Stepfamily Finances: Making it Work

If you live in a stepfamily, it's likely that money's tight. Supporting several kids while recovering from life as a single parent takes a toll. If you're recently divorced, you feel the financial strain of separating your assets and starting over.

When you remarry, it's not unusual to have conflicting ideas on how to handle your money. You must decide as a couple how to manage the income and expenses together. Do you keep it in two separate pots, divide up the bills, and pay accordingly; or do you trust your new partner in his money handling abilities and put the money in a shared pot?

There's not a single correct answer to that question. It can work both ways or a combination of both. But here are a few ideas to help make the choice that's right for you.

1. Listen to each other's opinion on his/her choice of handling the money and why he/she feels that way. If there were secrets surrounding finances in a previous relationship, it's natural that your spouse will want some separation at first. If money was mishandled previously, it will also affect one's choice.

2. Consider the financial history of each spouse and the present condition of your financial position. If there's only one income coming in, it's natural to pool the money into one pot. However, with two incomes and separate payments needed for child support, insurance premiums, or other expenses related to a biological child, you might choose to keep some money separate.

3. Define goals for your family together and how you want to accomplish those goals. If there is considerable debt with one spouse upon marriage, you may choose to pool your income and work together to pay off the debt. You also want to consider the message you're sending to your children on how you manage your money and what you want to teach them concerning finances.

4. Recognize the importance of flexibility in managing your money. Don't get hung up on insisting you must manage your money a certain way because you've always done it that way. If you start with separate accounts but decide you want to pool your resources together after a few years, give it a whirl. If it doesn't work, try a different way.

5. Be fair with one another. Each spouse should have access to some disposable income for discretionary needs without incurring a barrage of questions. It's also important that the wife and husband both have credit established in their own name.

My husband and I have primarily shared our pool of income and expenses since we married. We have been successful at managing our money together (although with five children, there's never enough!) We communicate frequently about how our money is spent and each has an equal voice in prioritizing our income and spending needs.

When my stepchildren lost their mother and we were receiving social security benefits for them, we kept that money separate to pay for private school expenses and other costs related directly to them. It was understood that the money allocated from her loss would be spent only for them.

Stepfamily finances can create additional conflict in a marriage. Learning how to make it work takes time and is different for every marriage. But with good communication and flexibility with one another, it can be managed successfully.